The Advantages of Centralized Crypto Custody with Netcoins

In the rapidly evolving world of cryptocurrencies, one of the most critical yet often overlooked aspects is custody. At its core, custody refers to the management of private keys: The cryptographic codes that grant control over digital assets. Within the crypto ecosystem, two primary custody models dominate: centralized custody, where a third party, such as an exchange, holds the private keys on behalf of users, and decentralized custody, where users retain full control over their own keys.

The choice between these models carries significant weight, influencing security, accessibility, and user trust. Centralized custody offers enhanced security through institutional-grade measures like multi-signature wallets, cold storage, and regulatory oversight, but it requires users to place trust in the custodian. In contrast, decentralized custody empowers users with autonomy, yet it demands a steep learning curve and personal responsibility for safeguarding assets which can be a daunting prospect for those unfamiliar with crypto’s technical complexities.

For many investors, the convenience and reassurance of centralized custody make it an appealing choice. This is where Netcoins, a Canadian cryptocurrency exchange, shines. By leveraging centralized exchange (CEX) custody solutions such as Bitgo, Netcoins delivers a seamless blend of security, convenience, and accessibility tailored to its clients’ needs. In this article, we’ll explore how Netcoins CEX custody model benefits its users, making it a standout choice for both novice and experienced crypto enthusiasts in Canada.

Understanding CEX Custody

What is CEX Custody?

Centralized exchange (CEX) custody refers to a system where a cryptocurrency exchange takes on the responsibility of holding and managing users digital assets usually through a 3rd party solution. Below, we break this down into its core components: an explanation of CEX custody, how it contrasts with self-custody, and the common features that define this model.

The Exchange Holds Private Keys on Behalf of Users

In the CEX custody model, the exchange acts as a custodian by holding the private keys to users’ cryptocurrency assets. Private keys are critical cryptographic codes that provide control over digital funds, enabling actions like sending, receiving, or trading cryptocurrencies. When users deposit their assets into a centralized exchange, they essentially hand over this control to the platform. In return, the exchange assumes responsibility for securing and managing those funds, leveraging its infrastructure and expertise to protect them. This setup allows users to access their assets through a simple interface, without needing to manage the technical complexities of private keys themselves.

User Responsibility vs Third-Party Management

CEX custody stands in stark contrast to self-custody, where users retain full control over their private keys and, consequently, their assets. In self-custody, individuals store their keys using methods like hardware wallets, paper backups, or secure software solutions. This approach offers maximum autonomy, as no third party can access or interfere with the funds. However, it also places the entire burden of security on the user. For example, losing a private key or falling victim to a hack could mean permanent loss of assets, with no recourse for recovery.

By comparison, CEX custody shifts this responsibility to the exchange. Users trade some degree of control for convenience and professional management. While self-custody appeals to those who prioritize independence and distrust third parties, CEX custody suits users who value ease of use and are comfortable relying on an exchange’s security measures. The trade-off is clear: self-custody demands technical know-how and vigilance, while CEX custody offers simplicity but requires trust in the platform.

In essence, CEX custody combines convenience with robust security features, offering a practical alternative to self-custody. It’s a model designed to simplify crypto management while leveraging the exchange’s resources to safeguard assets, making it a cornerstone of how many people interact with digital currencies today.

Overview of Netcoins Custodial Infrastructure

As a centralized exchange, Netcoins takes on the responsibility of holding users private keys, meaning that when clients deposit cryptocurrencies into their Netcoins accounts, the exchange assumes control over those assets. This custodial model eliminates the need for users to manage their own private keys, offering a convenient and user-friendly experience while entrusting Netcoins with the security of their funds.

To balance accessibility and security, Netcoins leverages a dual approach common among reputable CEXs:

• Hot wallets managed by Fireblocks: Netcoins utilizes Fireblocks for its hot wallet infrastructure, which consists of internet-connected wallets designed to handle day-to-day operations like deposits, withdrawals, and trades. Fireblocks is renowned for its high-security, institutional-grade solutions tailored for fast and secure movement of digital assets. Its multi-layered security—featuring biometric verification, multi-party computation (MPC), and insured coverage—ensures that these online wallets remain liquid and resilient against cyber threats. This allows Netcoins clients to enjoy seamless transactions with the confidence that Fireblocks’ advanced technology minimizes the inherent risks of online exposure.

• Cold Storage Managed by BitGo: For the bulk of its clients assets, Netcoins relies on BitGo’s cold storage solutions, where private keys are kept offline in highly secure, air-gapped systems or hardware devices. BitGo, a pioneer in multi-signature (multisig) and threshold signature scheme (TSS) technologies, offers industry-leading protection by isolating funds from internet-based attacks. This offline storage approach aligns with best practices, ensuring that the majority of user funds are safeguarded against hacking attempts, while only a small portion remains in hot wallets for immediate needs. BitGo’s regulated trust services and extensive support for cryptocurrencies further enhance Netcoins ability to securely custody a diverse range of assets. BitGo has comprehensive Insurance coverage of $100 million per wallet, meaning organizations such as Netcoins can spread out assets to maintain coverage for all of the assets under their custody.

Insight From Bitgo Director Nathan Stump

With the recent Bybit hack occuring Nathan Stump wrote “We are focused on providing secure custody solutions for institutional clients. Not all custody is created equal, cold storage though BitGo Trust allows a CEX to hold assets in a regulated insured environment. These are air-gapped wallets (no internet access) where the custodian manages all the keys to ensure safekeeping. Some of the hacks you’ve heard about recently in the industry are quite literally impossible with our setup.”

This combination of hot and cold storage, enables Netcoins to ensure both operational efficiency and robust asset protection for its clients.

Key Benefits of CEX Custody for Netcoins Clients

The centralized exchange (CEX) custody model offered by Netcoins provides significant advantages for its clients, making it an ideal choice for both newcomers and seasoned cryptocurrency users. By managing the complexities of digital asset storage and trading, Netcoins ensures a secure, accessible, and efficient experience. This section explores three core benefits: enhanced accessibility for beginners, robust security and trust, and improved liquidity and trading efficiency.

Enhanced Accessibility  

Netcoins model simplifies the cryptocurrency experience, removing common barriers that deter beginners from entering the space. Here’s how:

No Security Burden: No Need to Manage Private Keys or Seed Phrases For those new to crypto, managing private keys or seed phrases can be daunting. These are critical for controlling assets but require careful storage. Losing them means losing access to funds forever. Netcoins eliminates this burden by securely managing private keys on behalf of its users. Clients log in with familiar credentials like usernames and passwords, making holding crypto straightforward and stress-free.

Simplified Onboarding: Easy Funding via Interac e-Transfer, Bank Wire, or Crypto Deposits Netcoins makes it simple to fund accounts with Canadian dollars (CAD) through convenient options like Interac e-Transfer, bank wire, or direct crypto deposits. These flexible fiat on-ramps allow users to quickly move money into the platform without relying on external services, offering a smooth entry point for beginners unfamiliar with crypto purchasing processes. 

Trade What You Want: The platform features an intuitive, easy-to-navigate interface that supports trading over 60 cryptocurrencies. Designed with simplicity in mind, it enables beginners to view market data, execute trades, and manage their portfolios confidently.

Security and Trust 

Security is a top priority in the crypto world, and Netcoins CEX custody model delivers peace of mind through advanced protections and transparency.

Institutional-Grade Security Backed by Regulatory Oversight: As a Canadian exchange, Netcoins complies with strict regulations from FINTRAC and adheres to Know Your Customer (KYC) and Anti-Money Laundering (AML) standards. This oversight is paired with institutional-grade security measures: via Fireblocks and Bitgo ensuring client assets are safeguarded against threats like hacks or breaches.

Protection Against User Error (e.g., Losing Private Keys): User mistakes, such as losing private keys, are a common risk in self-custody setups, often resulting in permanent fund loss. With Netcoins managing private keys, clients are shielded from this danger. The platform’s professional handling and recovery options reduce the risk, offering a safety net that self-custody can’t match.

Assurance of Asset Safety Through Netcoins Operational Transparency: Netcoins builds trust through its commitment to transparency and accountability. As part of BIGG Digital Assets, a publicly traded company, it operates with a level of openness reinforced by regulatory compliance and regular audits. This gives clients confidence that their assets are managed responsibly.

Liquidity and Trading Efficiency

Netcoins enhances the trading experience with high liquidity and a streamlined platform, benefiting all user types.

High Liquidity Without Significant Price Slippage: Centralized exchanges like Netcoins offer robust liquidity, enabling fast trades with minimal price impact. By pooling liquidity from various sources, the platform ensures clients can buy or sell assets ike Bitcoin or Ethereum—swiftly and at stable prices, a key advantage for active traders.

Trading and Managing Assets on a Universal Platform: Netcoins provides a single, unified platform where users can fund accounts, trade, store, and withdraw assets without juggling multiple systems. This all-in-one approach saves time, reduces errors, and simplifies asset management for both beginners and experienced traders.

In conclusion, Netcoins custody model offers accessibility, security, and efficiency. It empowers beginners with an easy entry into crypto, ensures asset safety through top-tier protections, and streamlines trading with high liquidity and a cohesive platform—making it a reliable choice for all clients.

Thoughts From Netcoins CEO Fraser Mathews

“Netcoins has over $200m CAD in Assets under Custody. They are stored and held with BitGo, our third-party custodian and held for the benefit of our clients. They are fully insured and held separately from our Operational Funds and Assets. This is the highest standard in the industry and a great option for Netcoins clients to hold their assets. We value our client’s right to choose – it’s our duty to give them great options for the custody of their crypto assets.”

Disclaimer

Keep up with the latest by following Netcoins on social media. Disclaimer: This Content does not constitute investment, legal, accounting, tax, or other professional advice, nor should it be interpreted as such. It’s provided for informational purposes only and does not represent an offer or solicitation to buy or sell cryptocurrencies or related products.